Introduction
- On 8 July 2025 a glacial lake outburst flood, caused by the sudden drainage of a lake on the Purepu Glacier in the Tibet Autonomous Region, travelled down the Lhende river into the Bhotekoshi. It killed at least nine people, destroyed the Miteri Bridge at Rasuwagadhi and damaged operating and under-construction hydropower projects along the Trishuli, taking roughly 250 MW of generation offline.
- On 26 August 2026 a slab of glacier ice and rock broke away from the north face of Langtang Lirung and fell into the Lhende Khola valley. The debris briefly dammed the river and, when the obstruction failed, released a debris flood far larger than the 2025 event. ICIMOD reported over 1250 deaths and more than 6000 people missing across Nepal and Tibet, with extensive damage to hydropower works in Rasuwa and downstream. The two events struck the same corridor through different mechanisms: one was the drainage of an existing glacial lake, the other an ice-rock avalanche with no lake at the start. That distinction matters for the contractual questions discussed below.
A flood of this kind raises five questions under a construction contract:
For hydropower there is a sixth: whether the relief the developer obtains from its contractors matches the relief available to it under its power purchase agreement with the Nepal Electricity Authority (NEA).
This article explains how hydropower construction is contracted in Nepal, how the FIDIC forms most commonly used allocate flood risk, how that allocation interacts with the power purchase agreement, and what the public procurement regime adds where the employer is a public entity. Legal references are stated as of 22 September 2026.
How Hydropower Construction is Contracted in Nepal
The project chain: A hydropower project in Nepal is developed through a sequence of instruments: a survey licence and then a generation licence under the Electricity Act, 2049 (1992) issued by the Department of Electricity Development (or processed through the Investment Board Nepal for projects within its remit); environmental approval; a Power Purchase Agreement (PPA) with the Nepal Electricity Authority (NEA) fixing a Required Commercial Operation Date (RCOD); for larger and foreign-invested projects, a project development agreement with the Government of Nepal; financing and security documents; and, at the end of the chain, the construction contracts. Flood risk has to be allocated consistently across every link.
Three broad delivery models: In practice, hydropower construction in Nepal commonly takes one of three broad forms:
Multi-contract (split package): Separate contracts for civil works, hydromechanical works (gates, penstock, steel lining) and electromechanical works (turbines, generators, control systems), often with a separate transmission contract and an independent engineer. Upper Tamakoshi (456 MW), developed by an NEA-promoted company, used a civil contract with Sinohydro, an electromechanical contract with Andritz Hydro and a transmission contract with KEC International. Arun III (900 MW), developed by a subsidiary of SJVN under a project development agreement signed in November 2014, was let as separate civil (Jaiprakash Associates), hydromechanical (Om Metals) and electromechanical (BHEL) packages. The civil package is often on a FIDIC Red Book basis and the plant packages on a Yellow Book or plant-and-design basis, but the form must be confirmed project by project.
Single EPC turnkey contract: One contractor designs, procures and builds the whole plant for a lump sum under a defined completion regime, often on a FIDIC Silver Book basis amended for the project, and subcontracts the civil, hydromechanical and electromechanical scopes. How far completion and flood risk are actually transferred depends on the Particular Conditions, Employer’s Requirements, Contract Data and insurance arrangements; the printed Silver Book is not a complete answer by itself.
Lender-financed public projects: Projects developed by NEA or its subsidiaries with multilateral finance are let under the lenders’ procurement rules and conditions of contract. Tanahu (140 MW), developed by an NEA subsidiary with ADB, JICA and EIB finance, was divided into a headworks package and a waterway, powerhouse and plant package, originally awarded to different contractors.
Domestic independent power producers: Smaller Nepali developers commonly combine a domestic civil contractor, engaged on a modified Red Book or on terms adapted from the Nepal’s Public Procurement Monitoring Office (PPMO) documents, with a foreign equipment supplier engaged on a supply-and-install basis. Modifications are frequent, so the printed form is a starting point only.
Why the structure matters for floods: In a split-package project the employer may retain significant interface risk: a flood that damages the headworks can delay the electromechanical contractor, but that contractor’s entitlement still depends on the delay, prevention, risk-allocation and interface provisions of its own contract. Under a single EPC contract interface risk is concentrated in the EPC contractor, but only to the extent the contract actually transfers it.
Table 1: Delivery models and default flood-risk position
Floods under the FIDIC Red and Yellow Books
Two routes, not one: A flood usually does two things: it damages the Works, and it stops or slows the work. FIDIC deals with each under a different clause, and the entitlements differ. Framing every flood claim as force majeure risks leaving money unclaimed, or claiming money the contract does not give.
Physical damage, 1999 editions: In the 1999 Red and Yellow Book, the Contractor has responsibility for the care of the Works until taking over (Sub-Clause 17.2), subject to the Employer’s Risks in Sub-Clause 17.3. Paragraph (h) covers any operation of the forces of nature which is Unforeseeable or against which an experienced contractor could not reasonably have been expected to have taken adequate preventative precautions. Where damage results from an Employer’s Risk, the Contractor must rectify it and, subject to the claims procedure, is entitled under Sub-Clause 17.4 to an extension of time and Cost. Profit is added only for paragraphs (f) and (g), so a forces-of-nature repair is recovered at Cost without profit. Contractual risk and source of payment should be kept distinct: the insurance programme may respond to the same physical loss, subject to its own conditions and deductibles.
Physical damage, 2017 editions: The 2017 Red and Yellow Books reorganise this analysis. Sub-Clause 17.1 places care of the Works on the Contractor; Sub-Clause 17.2 identifies events for which the Contractor is not liable for loss or damage, including in paragraph (d) forces of nature that are Unforeseeable or against which adequate preventive precautions could not reasonably have been taken, other than those allocated to the Contractor in the Contract Data. An Engineer’s instruction to rectify such damage is treated as a Variation, so it is valued under the Variation procedure rather than at bare Cost. The 2017 text should be read across Clauses 17, 18, 19 and 20 together, not as a simple continuation of the 1999 wording.
Delay and prevention: Force majeure (Clause 19, 1999) and Exceptional Events (Clause 18, 2017) apply a four-limb test: the event must be beyond the party’s control; one it could not reasonably have provided against before contracting; one it could not reasonably have avoided or overcome once it arose; and not substantially attributable to the other party. The listed natural catastrophes (earthquake, hurricane, typhoon or volcanic activity, with tsunami added in 2017) are examples, not an exhaustive list. A flood does not qualify merely because it is a flood; the four limbs must be established on the evidence.
Consequences: Notice of the event is due within 14 days (Sub-Clause 19.2 / 18.2), and each party must use reasonable endeavours to minimise delay (Sub-Clause 19.3 / 18.3). For a qualifying natural catastrophe the Contractor is entitled to an extension of time but not Cost (Sub-Clause 19.4(a) / 18.4(a)). Cost is available only for the man-made categories (war and hostilities, rebellion and civil disorder, munitions and contamination and, in 2017, strikes), and for all of them except war only where the event occurs in the Country. If execution of substantially all the Works in progress is prevented for 84 continuous days, or for multiple periods totalling more than 140 days, by the same notified event, either party may terminate by notice taking effect seven days later (Sub-Clause 19.6 / 18.5). Under the 1999 edition the Contractor is then paid for work done, Plant and Materials ordered, other Costs reasonably incurred in expectation of completion, and removal and repatriation, but not lost profit; the 2017 provision is to broadly similar effect but should be read in its own terms.
Claims procedure: Independently of the event notice, a claim must be notified within 28 days of the date the claimant became aware, or should have become aware, of the event: Sub-Clause 20.1 (1999), with fully detailed particulars within 42 days, and Sub-Clause 20.2.1 (2017), with a fully detailed Claim generally due within 84 days under Sub-Clause 20.2.4. Failure to give the initial notice in time bars the claim under both editions, subject to any Particular Conditions.
Table 2: Flood risk in the Red Book, 1999 and 2017 compared
“Is a flood Unforeseeable?
FIDIC tests foreseeability by reference to an experienced contractor at the date for submission of the Tender. Scientific literature, including work by ICIMOD and the IPCC regional assessments, has flagged rising glacial hazard in the Himalaya for years, and the July 2025 event is now part of the factual record for any later tender in the Lhende-Bhotekoshi corridor. That record is relevant evidence, but it does not make every later flood foreseeable or settle the adequacy of any particular precaution. The 2026 event illustrates the point: a contractor may argue that knowledge of a glacial lake hazard did not make an ice-rock avalanche from an unstable mountain face foreseeable, while an employer may argue that the class of hazard, a sudden outburst or debris flood down the Lhende, was known. The analysis is site-, tender-date- and mechanism-specific, and for post-2025 tenders the second limb, whether adequate preventative precautions could reasonably have been taken against the magnitude that occurred, will often be decisive.”
The Silver Book, EPC Contracts and Insurance
The 1999 Silver Book allocates Employer’s Risks more narrowly than the Red and Yellow Books and omits the forces-of-nature risk. Physical damage caused by an unforeseeable flood may therefore remain with the Contractor under its care-of-the-Works obligation, while a qualifying force majeure event still gives time relief under Clause 19. The 2017 Silver Book revised the Clause 17 and 18 structure and must be read on its own terms. In either edition the Particular Conditions, Employer’s Requirements, Contract Data and insurance programme can materially change the practical allocation.
Where hydropower EPC contracts depart from the standard form, the amendments may address flood and glacial lake outburst flood expressly, insurance placement, deductibles, reinstatement, risk-sharing for defined catastrophes and liability caps. These are drafting choices rather than market rules, and the financial allocation after a flood should be tested against the contract, the insurance programme and any bespoke catastrophe-sharing mechanism.
Insurance mechanics: Construction all-risks cover may be a principal source of recovery for physical flood damage, but coverage is policy-specific. Flood and outburst-flood sub-limits, deductibles, precautionary-measure endorsements and warranties, exclusions, underinsurance, and delay-in-start-up cover all affect the outcome, as do the insured’s notification and loss-minimisation duties. Sedimentation deserves separate attention: removal of silt from headworks, tunnels and desanders, and abrasion damage to turbines, may be disputed as maintenance rather than rectification of physical damage, under both the contract and the policy.
Multilateral bank conditions: Where a project uses a FIDIC Multilateral Development Bank Harmonised Edition, the precise edition and the lender’s Particular Conditions should be identified before stating any entitlement. The risk architecture is broadly derived from the 1999 forms, but the operative text controls.
The Power Purchase Agreement (PPA) Interface
A developer’s exposure to a flood may extend beyond its construction contracts to its PPA. If the RCOD is missed, the developer may face the delay consequences the PPA provides and, depending on its terms, more serious remedies. Force majeure relief under the PPA and under a construction contract is negotiated separately, with potentially different definitions, causation tests, notice periods, mitigation duties and evidence requirements, so a gap can arise even where both contain force majeure provisions.
An EPC contractor may obtain an extension of time under its contract while the developer’s request to extend the RCOD is still pending or is refused; conversely, a developer may obtain PPA relief for a period in which its contractor has no entitlement. The construction contract, PPA, project development agreement, financing documents, insurance and transmission arrangements should therefore be mapped as a single risk chain.
In July 2026 the NEA Board was publicly reported to have adopted a framework for classifying projects with PPAs that had not reached commercial operation and for considering RCOD extensions, with documented force majeure and certain transmission-related delays among the relevant categories. Affected developers should document their force majeure case against the operative NEA decision and their own PPA, rather than against press reporting.
Public Works and the Public Procurement Regime
Where the employer is a public entity to which the Public Procurement Act, 2063 (2007) (Act) applies, the procurement and the contract sit within that Act, the Public Procurement Regulations, 2064 (2007) and the applicable PPMO standard bidding document, unless lender procurement rules govern under the financing arrangements. Whether a particular NEA-controlled company is subject to the Act should be confirmed rather than assumed. The PPMO documents themselves provide that, to the extent of any inconsistency, the Act and the Regulations prevail over the bidding document.
A regime in flux: The framework changed substantially in 2083. The Public Procurement Act, 2063 was first amended through the Public Procurement (Second Amendment) Ordinance, 2083, and subsequently through the Public Procurement (Second Amendment) Act, 2083, enacted on 30 Ashar 2083 (14 July 2026). The Public Procurement Regulations, 2064 were also amended through the Fifteenth Amendment Rules, published on 30 Ashar 2083 (14 July 2026), and the Sixteenth Amendment Rules, published on 3 Bhadra 2083 (19 August 2026).
PPMO standard documents: The PPMO issues separate works documents for conventional (employer-designed) and EPC contracts, drawing on FIDIC and World Bank structures. They contain force majeure provisions and, in some forms, compensation-event and early-warning machinery, but the wording and numbering differ by document and edition. The exact document incorporated into the contract must be identified.
Extension of time (Rule 120): Circumstances beyond the parties’ control are a recognised ground for extending the contract period. Under Rule 120 as amended by the Eleventh Amendment, the contractor must apply at least 21 days before the contract period expires, with its reasons, a revised work schedule and evidence that its performance security and insurances remain valid. Because the Rule has been amended repeatedly, the current version must be checked. The statutory procedure does not cure a failure to give contractual notices, and a contractual notice does not by itself satisfy the statutory deadline.
The Fifteenth Amendment: The Fifteenth Amendment introduced a transitional extension route for certain stalled contracts. As reported, it applies to contracts meeting physical-progress criteria, requires an application within 30 days, and requires a written undertaking that no additional financial claim will be made. Any flood-damage claim should be quantified, and the effect of the undertaking understood, before it is signed. The 2083 amendment to the Act is also reported to include a new provision invalidating coerced waivers of statutory or contractual rights, which may bear on such undertakings.
Other provisions engaged:
Variation (Section 54): A flood may require redesign or additional work, but post-flood work is not automatically a variation. The entitlement depends on scope, the contract’s risk allocation, the cause of damage and insurance; the approval thresholds were revised in 2083 and should be checked.
Termination (Section 59): Section 59 recognises termination where the contract cannot be performed because of circumstances beyond control, but a flood does not itself terminate a public contract; the contractual mechanism, notice and payment consequences apply.
Emergency procurement (Section 41): Direct procurement is available in statutory special circumstances, which include flood and landslide, but the conditions, approvals and record-keeping requirements still apply.
Disputes (Section 58): Disputes are first subject to settlement by mutual consent and, failing that, to arbitration under prevailing law as provided in the contract.
Insurance: Insurance obligations are driven by the applicable PPMO document, the Special Conditions and the policy itself; flood coverage, sub-limits, deductibles and notification conditions matter as much as the obligation to insure.
Table 3: Principal time limits after a flood
Practical Guidance
After a flood, under any of the forms discussed:
- Serve the force majeure or Exceptional Event Notice: within 14 days and the separate claim notice within 28 days. One letter can serve both only if it expressly satisfies each clause, identifying the provisions, the event, the affected obligations and the relief sought.
- Separate the claim for physical damage and reinstatement: from the claim for time and delay costs; they may arise under different provisions and be paid through different mechanisms, including insurance.
- Build the evidential record: hydrological data from the Department of Hydrology and Meteorology, warnings received and passed on, satellite and remote-sensing imagery, geotechnical assessments, emergency plans, photographs, drone surveys and site diaries.
- Mitigate and document it: Both FIDIC editions impose a duty to use reasonable endeavours to minimise delay, and failure to mitigate can reduce an otherwise available entitlement. Mitigation includes safety, stabilisation and protection of the remaining Works.
- Notify insurers: immediately and comply with the policy conditions; check sub-limits, deductibles, exclusions and delay-in-start-up cover.
- Developers should consider PPA force majeure notice: to NEA in parallel with construction notices, in the form and time the PPA requires, keeping dates, causation and the relief claimed consistent across all project documents.
- For public works: diarise both the contractual notice periods and the Rule 120 procedure.
- Keep safety and liability issues separate: where lives are lost, labour, disaster-management and criminal-law questions arise outside the construction contract and require separate advice.
For contracts not yet signed:
- Name flood, glacial lake outburst flood and debris flood expressly in the risk-allocation provisions, and define the test that determines when such an event transfers risk or qualifies for relief.
- Consider an objective threshold, such as a specified flow, water level or return period at a named gauging station, combined with a mechanism-specific test for outburst and debris floods; define the data source, measurement method and consequences.
- Decide expressly whether the cost of a catastrophic flood is borne by the employer, the contractor, insurers or shared under a defined mechanism.
- Align the construction contract’s force majeure definition, notice periods, mitigation duties, evidence requirements and extension mechanics with the PPA, and with the project development agreement, financing and transmission obligations where relevant.
- Align the insurance programme with the contractual allocation: flood sub-limits, deductibles, insured parties, waiver of subrogation, reinstatement and delay-in-start-up cover.
- Require an emergency preparedness and flood-response plan with river monitoring, alarms, evacuation routes, safe shutdown, drills and post-event inspection, addressing loss of communications and access, and give the employer and Engineer clear rights to review compliance.